Here is the complete procedure laid down by Reserve Bank of India for financing export of engineering goods on deferred payment terms and execution of turnkey projects and civil construction contracts abroad. Export of engineering goods on deferred payment terms and execution of turnkey projects and civil construction contracts abroad are collectively referred to as project exports.
The financial requirements of a project and constitution of the Working Group for clearance of the proposal are described in the previous question. For executing a project abroad, the exporter has to pass through the following stages:
(i) Obtaining pre-bid clearance from the Working Group:
(ii) Submission of bids to the employer;
(iii) Obtaining post-bid clearance from the Working Group; and
(iv) Taking up and completion of the project.
Exporters desiring to submit bids for deferred payment exports or turnkey projects should apply to their bankers in form DPX- 1 in ten copies, at least ten working days before the last date of submission of the bid. If the contract is for value above Rs. 5 crores but within Rs. 30 cores, the Exim Bank can grant clearance in principle provided the following conditions are fulfilled:
(a) The period of deferred credit should conform to the maximum period allowed by exchange control regulations.
(b) Moratorium for repayment of principal should not exceed one year in respect of export of capital or producer goods, and two years for turnkey projects. No moratorium for export of consumer durables and for payment of interest.
(c) Deferred receivables should be received in equal half-yearly instalments over the agreed period with relation to the mean date of shipment or the date of respective shipment.
(d) The rate of interest on deferred receivables should normally cover the cost of post-shipment credit to the exporter at the prevailing rate.
(e) Down payments together with advance payments should not be less than 10 per cent of the contract value. The rate of agency commission should not exceed 5 per cent of the contract value.
(f) Down payments and deferred payments receivable should be secured by a letter of credit/bank guarantee/guarantee or promissory note from the foreign government.
(g) Bridge finance for meeting temporary shortfalls in working capital should not normally exceed 10 per cent of the contract value. Proposals not conforming to the above and those in excess of Rs. 30 crores should be got cleared by the Working Group.
Once the proposal is cleared the bankers of the exporter may furnish the bid bond. If the bid is successful, the exporter may enter into the contract with the overseas buyer and apply for post-award clearance.
Within fifteen days of entering into contract the exporter should submit to his bankers an application in form DPX-3 (in respect of deferred payment supply contract) or in form PEX-4 (in respect of civil construction contracts) in ten copies along with eight copies of the contract. If there are any Indian sub-contractors, they should be advised by the prime contractor to submit similar application to the bankers of the prime contractor for obtaining approval for the portion of the contract entrusted to each sub-contractor.
Depending upon the fact whether the pre-bid clearance was granted by the bank itself, Exim Bank or by the Working Group, the bank will grant the post-award approval or forward the application to Exim Bank or the Working Group as the case may be for their approval. The approvals given by these institutions are only approvals in principle.
In all cases, the final approvals for various fund-based and non-fund-based facilities as well as requisite exchange control approvals will be issued separately by the concerned institutions and the exporters’ bankers on the basis of the decisions taken while granting the package post-award clearance.